AMC Networks Earnings Beat Estimates, U.S. Ad Revenue Drops 6.2 Percent

'The Walking Dead' S07E16 Still Maggie - H 2017
Gene Page/AMC

The second part of season seven of the hit show 'The Walking Dead' aired in the quarter.

AMC Networks, the company behind such cable networks as AMC, IFC and Sundance Channel, on Thursday reported better-than-expected first-quarter earnings, but said advertising revenue for its domestic networks fell more sharply than Wall Street had forecast.

Original series that aired in the first quarter included AMC hit series The Walking Dead, which has been the topic of much Wall Street debate amid lower ratings for season seven, which wrapped up in early April.

CEO Josh Sapan during a morning analyst call addressed his network's 6 percent fall in ad revenue, driven in part by the timing of original series, especially Better Call Saul. He argued that, as cord-cutting increases and advertisers chase online audiences, AMC is increasingly weighing delayed broadcast viewing, internet viewership and social media interest for its shows to judge a series' appeal to advertisers.

"Taken together, AMC Networks is a particularly desirable buy for advertisers and we believe this positions us quite well as we head into the upfronts," Sapan said. He also said his company had no news to report after media speculation that AMC may launch a commercial-free online video streaming service that targets millennial TV subscribers.

"The only thing I would say is the speculation is indicative of the desirability of AMC shows," the exec told analysts. He also talked up AMC Networks increasingly becoming a studio, with its AMC Studios division, enabling more options in rolling out original shows to maximize value.

"We have an initiative to be in the content ownership and exploitation business on various and multiple platforms, domestically and internationally," he told analysts. An example is cable operator Charter Communications and AMC Networks jointly developing and co-producing original shows for Charter's Spectrum platform.

The deal sees Charter nabbing an exclusive first window domestically for the co-produced content, while AMC Studios retains a right to distribute the content internationally. "We see that as an extension of our AMC Studios operation and a new outlet and a new partner to expand our operations with, and for," Sapan said.

And overseas, as AMC Networks becomes more of a TV studio, he insisted his company has more flexibility to either feed its own expanding AMC and Sundance-branded channels and then syndicate an original series, or sell shows to SVOD or other outlets for higher rates.

"We get the benefits of having stability in our top-line, with recurring revenue, and being able to course correct as we go forward," he argued. During the latest quarter, the company posted first-quarter earnings of $136 million, compared with $113 million in the year-ago period. Earnings per share of $1.98 compared with $1.55 in the year-ago period.

Adjusted earnings hit $145 million, down from $153 million, but earnings per share rose to $2.10 from $2.09. Wall Street had on average expected earnings of around $2.00 per share.

Quarterly revenue increased 1.9 percent to $720 million, driven by a 2.8 percent gain at the company's national networks, while it recorded a decrease at its international networks. The company recorded higher operating expenses at its U.S. networks, "primarily attributable to higher programming and marketing expenses."

its U.S. networks' advertising revenue was expected to drop in the quarter as management had told Wall Street so on its February earnings call. Morgan Stanley analyst Benjamin Swinburne had forecast a 4 percent drop in the first quarter. The company, though, reported a 6.2 percent decline to $248 million on Thursday.

But distribution revenue rose 9.8 percent to $368 million, which the firm said was "primarily attributable to an increase in licensing revenues as well as an increase in affiliate fees."

May 4, 12 p.m. Updated with comments by Sapan.